Owning your own business is a dream come true for many Americans. However, there are many obstacles in place for soon-to-be business owners, ranging from staffing to providing financial assistance to customers. That is a major factor for those in the construction business. Here is some information that will not only help your customers obtain loans whilst building their dream homes, but also help your business soar.
Construction loans are a more problematical than conventional mortgage loans because someone is borrowing money on something that does not yet exist. The bank wants assurances that you can get the house built on time and on budget, and that your customer does not change his mind too many times about changes that will delay or add costs to the project.
“One Time Close” construction business loans were at one time the most popular to obtain. However, are now difficult to find in some areas. Also called “all-in-one loans” or “construction-to-permanent loans”, these wrap the loan and the mortgage on the completed project into a single loan. The loan has one approval process, and one closing, simplifying the process and reducing the closing costs. Within this basic structure, there are several variations. Many charge a higher rate for the construction loan than the permanent financing. Usually, the borrower can choose from the portfolio of mortgages offered by the lender such as 30-year-fixed, or various ARM’s (adjustable rate mortgages). Some banks will let you lock in a fixed rate with a “float-down” option allowing you to get a lower rate if rates have fallen, for a fee of course. There may be penalties if the construction phase of the loan exceeds 12 months.
A “Two Time Close” loan is actually two separate loans; a short-term loan for the construction phase, and then a separate permanent mortgage loan on the completed project. The customer is refinancing when the building is complete and need to be approved and pay closing costs all over again. During the construction phase, the customer will pay only interest on the money that has been paid out, so their payments will be small, but increase as more money is disbursed. There may be a maximum duration for the loan, such as 12-month, after which penalties kick in.
It is often difficult for owner -builders to get construction loans. Since you are being loaned money for something that does not yet exist, you need to convince the bank that can get the job done on time and on budget. They key to this is approaching the bank with professional plans, a detailed estimate, and a proposed construction schedule. Also, consider bringing along a reputable building consultant to the meeting.
While new construction is in high demand, it is still tough to obtain a loan, regardless if you are a customer or merchant. By understanding this information, you are more likely to succeed in your business, as well as gaining customers trust.
Blair Thomas has been an expert in the electronic payments industry for over 10+ years. When he is not running his business he spends his time producing music, which has been featured in a variety of films.